Tuesday, January 20, 2009

To Prevent Great Depression II, Cut Taxes to 0%

When Barack Obama takes office today, his first order of business will be a stimulus package estimated to be close to $1 trillion, including $300 million in tax cuts and the largest new government spending program for infrastructure since Franklin Delano Roosevelt. Sages nod that replicating aspects of FDR's New Deal will help pull the country out of a recession. But the experience under FDR largely provides a cautionary tale.Mr. Obama's policy plans are driven by the conventional economic wisdom that the New Deal economic programs ended the Great Depression. Not so. In fact, thanks to New Deal policies and programs, the U.S. economy faltered for years longer than it might otherwise have done.The quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs. The way to do this is to slash taxes. The U.S. corporate tax rate, currently the highest in the world, should be cut to 0% (corporate income would still be taxed, of course, when distributed to shareholders as dividends). The capital-gains tax should be cut further.

The positive impact on corporate-credit markets, the stock market, the attractiveness of the U.S. to foreign investors, and the willingness to take business risk and create new jobs would be immediate. Capital-gains tax collections would rise. Capital flows would be in the hands of those who are driven to build businesses and permanent jobs efficiently instead of pushing that capital through a government pipeline with endless amounts of friction. If the U.S. is to lead the international economic community out of this crisis, this is the place to start.

it would not escape taxes at all - that money would be taxed when it is disbursed to pensioners as a pension

It would if owned by a Roth IRA or Roth 401k. Not that I object, mind you. Roth accounts are still a tiny fraction of the total, but I wouldn't expect our government to do anything so favorable to the taxpayer.

At this point I am far more worried about cries of "401ks are welfare for the rich" and calls for excise taxes on, or wholesale theft of, private accounts. Such acts are, unfortunately, well within the character of the current administration.

Quote: At this point I am far more worried about cries of "401ks are welfare for the rich" and calls for excise taxes on, or wholesale theft of, private accounts. Such acts are, unfortunately, well within the character of the current administration.

At 1/20/2009 12:56 PM, Michael said... First you would have to suspend common sense...a bit more difficult than cutting taxes. Unquote

This subject, government takeover of 401Ks and possibly IRAs, is being toutet to government by a number of large universities, where the subject of expropriation of private financial assets has apparently been discussed for some time. Sites confirming this are easy to find via google.